Japanese equities have risen a "bit too fast" and appear to be somewhat "bubbly," according to the former vice finance minister of Japan, Eisuke Sakakibara, as the Nikkei crossed the key 15,000 level for the first time since 2008 on Wednesday.
"The movement of equity prices seems to be somewhat bubbly - there will be some corrections in the equity market in the months to come probably by the summer," Sakakibara told CNBC Asia's "Squawk Box" when asked about the negative consequences of "Abenomics" - Prime Minister Shinzo Abe's aggressive policies to reflate the economy.
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He added, "But this kind of correction is healthy. With some correction it will again start to move upwards."
Japan is the world's top performing equity market this year - rising 45 percent since the start of 2013 - dwarfing gains on U.S. markets which have risen about 16 percent year to date.
The market has benefited from robust foreign inflows as investors turned optimistic that weakness in the yen would provide a boost to corporate profitability.
Discussing his views on continued weakening of the yen, Sakakibara - who is known as 'Mr Yen' for his efforts to influence the currency's exchange rate through verbal and official intervention in the late 1990s - said the depreciation that has taken place thus far is positive, but added it would be undesirable for dollar-yen to rise to 110-115.
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"Some depreciation of the currency is desirable, and so far so good. If the depreciation stops around 105 it will not create a major problem for the Japanese economy," he said, noting that he expects the dollar-yen to trade in a range of 95-105 in the coming months.
Dollar-yen, which crossed the key psychological barrier of 100 last week, has risen almost 18 percent this year.
Weakness in the yen is a doubled edged sword for the economy, while it boosts the competitiveness of Japanese exports, it also increases the cost of the country's fuel imports. Japan's dependence on fuel imports has increased after the Fukushima nuclear disaster in March 2011, which led to the closure of most of the country's reactors.
Volatile Bond Market
Japan's radical monetary policies, with the Bank of Japan pledging to pump in $1.4 trillion into the economy, have resulted in a lot of volatility in the country's bond market, however Sakakibara said this does not worry him.
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"Security dealers haven't been accustomed to these kinds of aggressive moves on the part of the Bank of Japan and it will eventually settle down. They will get used to the new regime in Japanese monetary policy."
Japan Government Bond (JGB) yields rose 4.5 basis points to 0.9 percent on Wednesday, its highest level since April 2012 as further yen deprecation encourages investors to sell bonds for higher yielding assets.
"If JGB yields go up too high that's a problem, but I think it could be controlled. JGB market is a market for Japanese investors and Bank of Japan has a lot of influence on that market. I'm not particularly worried."
(Read More: Yen Selling May Become an 'Avalanche,' Soros Says)
—By CNBC's Ansuya Harjani